Natwest Group Plc · LSE:NWG
Natwest — FY2021 Earnings Presentation
49 slides from Natwest's earnings presentation, Feb 18, 2022
Slide 1: Full Year 2021 Results
Full Year 2021 Results 18 February 2022
Slide 2: Howard Davies, Chairman
Howard Davies Chairman Information classification: Classification: Secret Secret 2
Slide 3: Alison Rose, Chief Executive Officer
Alison Rose Chief Executive Officer 3
Slide 4: FY'21 results highlights
FY’21 results highlights Strong 2021 FY’21 performance1 performance and attractive shareholder £4.3bn £3.0bn 9.4% distributions Operating profit before tax in Attributable profit in FY’21, Return on Tangible Equity in FY’21, vs. £0.4bn loss in FY’20 vs. £0.8bn loss in FY’20 FY’21, vs. (2.4%) in FY’2
Slide 5: Delivering against our strategic priorities to drive sustainable returns
Strategic priorities will drive sustainable returns Delivering against our Our Purpose strategic priorities to We champion potential, helping drive sustainable returns people, families and businesses to thrive for shareholders and help our customers to thrive Our Strategy Supporting customers at eve
Slide 6: Supporting customers at every stage of their lives
Sustainable growth with an intelligent approach to risk Supporting customers at • ~1m Financial health • Affluent +23 NPS every stage of their lives, checks annually vs. -2 in FY’19² positive momentum since • 470k new primary • Digital Net New Money £0.8bn vs. banked customers 2019 since Mar’20¹ £0.
Slide 7: Investment programme to support income growth and drive productivity
Sustainable growth with an intelligent approach to risk Investment programme ы to support income c.80% (~£2.4bn) relates to growth and drive Digital and Technology Investment spend1 productivity programmes FY’21 – FY’23 We are continuing to £bn 0.3 successfully invest our multi-year programme 0.9 dr
Slide 8: Small & medium sized business customers – building an ecosystem
Sustainable growth with an intelligent approach to risk Small & medium sized • Processed 1 in 4 UK business customers – • #1 business payments payments building an ecosystem (excl. card acquiring)2 powered by innovation “Help me… and partnerships • Mobile channels +7.1% ...pay and ...take • 83% Digi
Slide 9: Affluent and high net worth customers
Sustainable growth with an intelligent approach to risk Affluent and high net AuMA growth – support Supporting long term Develop and deepen ы worth customers more customers to invest saving customer relationships digitally Coutts is #1 UK1 Private Bank and achieved B Corp NatWest Invest expected Lev
Slide 10: Supporting our customers on the climate transition
Sustainable growth with an intelligent approach to risk Supporting our Corps. & Institutions SMEs to Mid. Corps. Consumers ы customers on the climate transition #2 – globally for GBP £160bn-plus – the SME £728m – Green 2021 Highlights: GSS Bond underwriting2 revenue opportunity3 Mortgages4 completed
Slide 11: We are a digital bank delivering improved customer experience
Simplification and efficiency We are meeting our customer needs digitally and improving the quality and speed of our digital interactions from product led to engagement led We are a digital bank Retail customer needs met digitally Commercial customers digitally active5 ы delivering improved 87% 76%
Slide 12: Capital usage and generation
Disciplined deployment of capital Capital usage and Actively managing capital for growth and risk management ы generation ▪ Group RWA intensity down from 54% in FY’19 to 43% in FY’21 Allocating capital to ▪ Through ongoing active capital management in Commercial we have reduced segments that are low
Slide 13: Supporting customers at every stage of their lives: One Bank
Sustainable growth with an intelligent approach to risk One Bank Supporting customers at Commercial & ы every stage of their lives Retail Private Institutional Ulster Affluent SMEs | Mid-Corps Later in Q1’22 we plan to Personal Consumers Private Large-Corps | Institutions Commercial create a new fra
Slide 14: Returning surplus capital to shareholders
Disciplined deployment of capital £3.8bn shareholder distributions announced for FY’21, £bn Returning surplus capital v to shareholders Announced 1.5 3.8 Paid NatWest Group is a capital 0.751 1.6 generative business with a 1.1 0.75 set of strong franchises 1.2 2.2 FY’21 ordinary dividends of 0.85 £1
Slide 15: Katie Murray, Chief Financial Officer
Katie Murray Chief Financial Officer 15
Slide 16: FY'21 performance supported by economic recovery with RoTE 9.4%
Focused on generating shareholder value FY’21 performance FY’21 FY’21 supported by economic incl. discontinued operations recovery with RoTE 9.4% £m Go- Ulster Go- Ulster forward1 Bank RoI Group forward1 Bank RoI Group Go-forward1 group income stable compared to FY’20 Total income 10,284 228 10,512
Slide 17: Strong Q4'21 operating performance
Focused on generating shareholder value Strong Q4'21 operating Q4'21 vs FY'21 vs performance Go-forward group, £m1 Q4'21 Q3'21 FY’21 FY’20 Q3'21 FY'20 Income excluding notable Net interest income 1,919 1,866 7,514 7,354 2.8% 2.2% items was stable versus Q3’21 as higher balances Non-interest income 6
Slide 18: Net interest income support from margin and volumes
Focused on generating shareholder value Go-forward Net Interest Income1,2, £m Net interest income 1,919 support from margin 14 3 4 and volumes 1,866 16 16 Net interest income was up 3% in the quarter driven by higher volumes and high yield curve Q3’21 Retail Commercial Private NatWest Other Q4’21 Ba
Slide 19: NIM drivers: limited change to customer rates post December
Focused on generating shareholder value Gross yields of interest earning banking assets, %1 NIM drivers: limited 3.0 2.81 2.823 change to customer 2.73 2.65 2.73 Commercial Banking rates post December 2.65 2.67 BOE rate increase 2.5 2.65 2.64 2.58 Retail Banking Retail Banking loan yield 2.0 1.83 1.
Slide 20: Spotlight on NIM drivers
Focused on generating shareholder value Retail Banking margin dynamics2, % Spotlight on NIM drivers 2.20 Retail NIM 2.00 We have taken significant 1.80 Customer mortgage rate2 action to increase 1.60 customer mortgage rates 1.40 1.20 Mortgage margin2 since Oct’21 due to rising 1.00 swap rates 0.80 0
Slide 21: Supporting our customers in target segments
Focused on generating shareholder value Go-forward gross customer loans1, quarter on quarter, £bn Supporting our 355.6 customers in target (0.7) Gov Schemes 4.0 segments Mortgages 1.4 0.1 RCF2 351.6 0.2 (1.3) Other (0.1) 0.4 Gross loans1 to customers Unsecured up 1.1% in the quarter driven by mortga
Slide 22: Non-interest income benefited from ongoing recovery in fees and commissions
Focused on generating shareholder value Go-forward Non Interest Income1,2, £m Non-interest income 707 615 642 645 benefited from ongoing 221 598 116 139 134 39 recovery in fees and Trading & Other commissions offset by Net fees & Commissions lower trading income 559 499 486 503 511 NatWest Markets i
Slide 23: Delivered 4% cost reduction for FY'21 in line with target
Simplification and cost efficiency Current view - Other expenses ex Operating Lease Depreciation and Ulster Bank RoI Direct, £m Delivered 4% cost (4.0%) reduction for FY’21 in 6,348 line with target (256) 6,092 Other expenses, ex-OLD (3.4%) 1,716 and Ulster Bank ROI (59) 1,657 direct, of £1.7bn in Q
Slide 24: Impairment release resulting from better economic outlook
Intelligent and consistent approach to risk Impairment release Economic scenarios and weightings Change resulting from better Base case scenario FY’21 H1’21 Macroeconomic variable1 economic outlook 2022 2023 2022 2023 2022 2023 Weighting 45% 40% 5% Updated economic UK GDP - annual growth (%) 5.0 1.6
Slide 25: Improved economic outlook and risk metrics drive ECL release
Intelligent and consistent Group ECL3 £m £1,542m approach to risk 6,186 (166) Improved economic 878 (611) outlook and risk metrics 117 (931) 6 drive ECL release 374 (1,052) 3,792 3,806 80 202 5,191 584 Of the £2.4bn ECL release 417 in FY’21, £0.6bn was in the 3,510 2,805 fourth quarter, largely driv
Slide 26: Good progress on our phased withdrawal from the Republic of Ireland
Portfolio discipline and Ulster Bank RoI, FY’21 effective deployment of capital Loans1 (€bn) RWAs (€bn) Good progress on our Continuing phased withdrawal from Tracker + Other the Republic of Ireland €7.9bn c.35% €18.6bn €10.9bn €10.7bn In FY’21 we entered into c.65% binding agreements with Discontin
Slide 27: Strong capital position post announced distributions
Robust balance sheet with strong capital & liquidity levels CET1 ratio, (%)2 Strong capital position 18.7% post announced 0.05 18.2% (0.75) 0.32 (0.10) distributions (2.0) 15.9% (0.2) (0.1) CET1 ratio 18.2% down 50bps on Q3’21 driven by announced distributions Q3’21 Attrib. profit Capital RWAs Other
Slide 28: Progress towards our 13% to 14% CET1 target by FY'23
Robust balance sheet with strong capital & liquidity levels Key drivers of CET1 ratio1 We are making progress towards our 13% to 14% Capital Capital usage CET1 target by FY’23 generation • Earnings • Loan growth 18.2% • Ulster Bank RoI RWA movements expected withdrawal to largely reflect lending (2.
Slide 29: Strong capital and liquidity positions provide flexibility
Robust balance sheet with strong capital & liquidity levels CET1 headroom above Headroom above Liquidity coverage ratio Strong capital and medium term target1,2 minimum UK leverage remains well above min UK requirements requirement liquidity positions provide flexibility 190-290bps 255bps £89.9bn c.
Slide 30: Key financial guidance
Guidance 2021 Base 2022-2023 Outlook Key financial guidance New income ex-notable items target, to be £10.1bn above £11.0bn in the Go-forward group1 in 2022 We have clear financial targets to drive sustainable returns for Continued strong cost reduction, with target our shareholders £6.8bn to reduce
Slide 31: Alison Rose, Chief Executive Officer
Alison Rose Chief Executive Officer 31
Slide 32: Investment case
Investment case A purpose-led company with clear strategic Accelerating growth priorities, strong market positions and capacity to grow Simplification via Digital and Technology We are: • Supporting our customers and growing lending • Investing to digitise Disciplined deployment of capital • Committ
Slide 33: Q&A
Q&A 33
Slide 34: Outlook
Outlook Financial targets and outlook Income In 2022, we expect income excluding notable items to be above £11.0 billion in the Go-forward group. Costs We plan to invest around £3 billion over 2021 to 2023 but, with continuing simplification, we plan to reduce Go-forward group operating expenses, ex
Slide 35: Notable items
Notable items Q1'20 Q2'20 Q3'20 Q4’20 FY’20 Q1’21 Q2’21 Q3’21 Q4’21 FY’21 £m Metro Bank mortgage portfolio acquisition loss - - - (58) (58) - - - - - FX recycling (loss)/gain in Central items & other (64) (39) 64 (1) (40) - - - - - IFRS volatility in Central items & other1 (66) 55 49 45 83 (1) 45 -
Slide 36: New Commercial & Institutional franchise
New Commercial & Institutional franchise We have announced we will create a new franchise, Commercial & Institutional, bringing together our Commercial, NatWest Markets and RBS International businesses to form a single franchise, with common objectives, to best support our customers across the full
Slide 37: Ulster Bank ROI – continuing & discontinued
Ulster Bank ROI – continuing & discontinued FY21 FY20 Ulster Bank ROI (£m) Continuing Discontinued Continuing Discontinued Total Total operations operations operations operations Total income 228 269 497 222 288 510 Operating expenses (482) (45) (527) (441) (45) (486) o/w Other expenses (421) (45) (
Slide 38: Tangible net asset value
Tangible net asset value GBP, m Share count, m Pence1 As at 30 September 2021 30,769 11,436 269 Attributable profit 434 4 Cash flow hedge reserve (net of tax) (141) (1) Share buy-back (387) (174) 1 Other 14 10 0 Net change (80) (164) 3 As at 31 December 2021 30,689 11,272 272 1. May not cast due to
Slide 39: Key Drivers of CET1 ratio: from 15.9% at Jan 2022 through to FY'23
Key Drivers of CET1 ratio: from 15.9% at 1 Jan 2022 through to FY’23 Driver Timing Impact1 Details Earnings In 2023 we expect to achieve a RoTE comfortably above 10% for the Group Lending volumes Across 2022 and 2023, we expect movements in RWAs to largely reflect lending growth Intend to distribute
Slide 40: Impairment charge/(release) by segment
Impairment charge/(release) by segment Retail Private Commercial Natwest Go-forward Ulster Bank RBSI Group Banking Banking Banking Markets Group RoI Q4’21 (£m) 5 (12) (289) (12) (16) (328) (13) (341) Q4’21 (bps) 1 (26) (113) (31) n.m. (37) (72) (38) Q3’21 (£m) 16 (15) (216) (11) (3) (226) (7) (233)
Slide 41: Group Strategic costs
Group Strategic costs, £m Property 326 Technology 88 Redundancy Costs ex. NWM 1,013 378 NWM Direct 38 Other 256 787 61 61 42 102 34 154 88 50 96 134 124 237 237 89 145 Q4’20 Q4’21 232 236 FY’20 FY’21 Pg 85 FY’21 ARA 41
Slide 42: Diversified risk profile
Diversified risk profile Gross Loans & Advances excluding Ulster1 by stage £bn, Q4’21 Gross loans and Advances ex-Ulster1 by sector £bn, Q4’21 Stage 2 Stage 2 Past due Not past due Stage 3 0.7% 8.4% Corporate Mortgages 1.2% 69.6 Property 32.4 £362.6 £362.6 187.8 Other 0.6 59.0 Stage 1 Sovereign & FI
Slide 43: Customer Loans and Deposits
Customer Loans1 and Deposits Net Loans, £bn2 Total Deposits, £bn Q3’21 Q4’21 Q3’21 Q4’21 Retail Banking 180.5 182.2 186.3 188.9 Private Banking 18.4 18.4 35.7 39.3 Commercial Banking 102.7 101.2 178.3 177.7 RBS International 15.6 15.5 36.9 37.5 UK & RBSI Retail and Commercial 317.2 317.3 437.2 443.4
Slide 44: Q4'21 Customer loan growth by product and sector
Q4’21 Customer loan growth by product and sector Total loans to customers (amortised cost), £bn Retail Banking 1.4 172.8 171.4 0.1 7.0 7.1 0.1 3.7 3.8 Q3’21 Q4’21 Q3’21 Q4’21 Q3’21 Q4’21 Mortgages Personal advances Cards Commercial Banking Loans to customers (amortised cost) ex-government schemes, £
Slide 45: Supporting our customers through Covid-19
Supporting our customers through Covid-19 £0.7bn of net government scheme repayments in Q4, £0.4bn related to BBLS Government Lending Scheme in NWG, £bn1 Approved 6.1 1.8 0.7 0.5 9.1 BBLS Drawdown Q3’21 7.9 (0.4)2 Drawdown Q4’21 7.5 0.1 Approved 3.3 0.6 0.3 4.3 CBILS Drawdown Q3’21 3.7 (0.3)2 Drawdo
Slide 46: Structural Hedge
Structural Hedge1 FY 2021 FY 2020 Incremental Total Period end Average Total Incremental Total Period end Average Total Income Income notional Notional Yield Income Income notional Notional Yield (£m) (£m) (£bn) (£bn) % (£m) (£m) (£bn) (£bn) % Equity structural 426 448 21 22 2.05 478 580 23 24 2.43
Slide 47: Interest rate sensitivity
Interest rate sensitivity1 FY 2021 +25 basis points parallel upward shift -25 basis points parallel upward shift Year 1 Year 2 Year 3 Year 1 Year 2 Year 3 (£m) (£m) (£m) (£m) (£m) (£m) Structural Hedge 43 144 235 (43) (144) (235) Managed Margin 282 220 255 (255) (209) (187) Other 4 (5) Total 329 364
Slide 48: Economic Assumptions
Economic Assumptions1 FY’21 H1’21 Scenario Upside Base Case Downside Extreme Upside Base Case Downside Extreme downside downside Weighting 30% 45% 20% 5% 35% 40% 20% 5% UK GDP – Annual Growth (%) 2021 7.0 7.0 7.0 7.0 10.1 7.3 2.7 0.1 2022 8.1 5.0 1.5 (3.6) 5.4 5.8 4.3 - 5 year Average 3.9 3.2 2.8 2.
Slide 49: Cautionary and Forward-looking statements
Cautionary and Forward-looking statements The guidance, targets, expectations and trends discussed in this presentation represent NatWest Group management’s, current expectations and are subject to change, including as a result of the factors described in the “Risk Factors” on pages 406-426 of the N